The statement of financial position It is the reflection of the balance sheet with the financial situation of the company, which is useful for decision-making, since it provides a broad overview of the way in which you can plan payments, apply for loans, generate a price list, apply a strategy of sales, purchases and even opens a panorama towards future investments.
For this reason, below you will learn about the balance sheet, its usefulness, how it is composed, what information you obtain, what it is for, what is the statement of financial position and other important concepts for the accounting of your company.
Statement of financial position and balance sheet
- The statement of financial position o balance sheet is the information that, taking a certain period of time, reflects the financial situation of the company.
- It is made up of everything that the company has reflected in the asset accounts, the debts of the company represented in the liability account and the stockholders’ equity or equity of the company that is obtained as a result of the difference between assets and liabilities.
- It is a report that is normally made when the company’s financial year ends, it is the final balance that is carried out annually.
- But you can also improve your period with a monthly report, every three months or every six months to make a more accurate follow-up.
What is the statement of financial position for?
- Make a report as it is statement of financial position It serves both the shareholders, partners and even so that the owner of the company has knowledge about how the company operates, if it does it correctly, if the resources have been managed correctly, if the operation process is deficient or optimal and in Consequently, the financial health of the company is known.
In this way, it allows making important decisions when knowing the solvency of the business, it is known if there is surplus investment, if there is a lack of inventories due to errors when planning purchases and other concepts such as credit sales and lack of collection.
Elements of the statement of financial position
The statement of financial position is made up of several elements such as:
- The assets that are made up of everything the company has, ranked in descending order according to their liquidity.
For example, current assets that make up credits, assets or rights that have the option of being converted into cash at the end of the year or in less than one year.
Therefore, current assets include the bank account, cash account, inventory account, and accounts receivable.
Fixed assets that are the tangible or intangible assets of the company that cannot be converted into cash in the short term and that are needed for the company to function.
It is made up of accounts such as buildings, computer equipment, office equipment, furniture, land, transportation equipment, equipment and machinery.
- Deferred assets are representative of expenses and costs to be charged in future periods.
For example, interest on financial obligations that have been discounted in advance, leases in advance, insurance paid in advance.
- Liabilities are obligations or debts that the company has. And it includes everything that the company owes to third parties such as suppliers or banking institutions, they are:
Current liabilities, represent the debts that the company has with a term of less than one year or short term.
And they include accounts payable to creditors, advances to customers, accounts payable to suppliers, bank obligations and taxes to pay.
Long term passives
Long-term liabilities are the debts that the company contracted and that must be settled over a period of more than one year.
It is made up of a document payable account and a bank credit account.
The deferred liability includes the debts that correspond to the result of future years.
It is made up of the anticipated income reimbursement account and the anticipated income received account.
The equity is the capital of the company, it is representative of the investment in resources that the owner or partners have made.
State of financial position
The statement of financial position is the accounting document that represents the financial situation of the company on a certain date. It is made up of stockholders’ equity, the asset account and the liability account. Ultimately it is the balance sheet.
It lacks a standard presentation because its format is established according to the personal criteria of each entrepreneur.
However, it always presents common characteristics such as the integration of all the operations of the company with a coherent information content, it shows relevance in terms of reflecting the performance of the company for making economic decisions, since with a faithful reflection of the financial reality and allows to evaluate present, past and future in order to make corrections if necessary.
It also has the ability to compare different periods of the company to identify the trend of the financial situation.
Statement of changes in financial situation
The statement of changes in financial situation refers to the variability of the economic level faced by a company. From an analysis of the financial statements it is possible to save resources and improve all decisions
It is also known as the state of origin or state of background motion. It is the one that shows the financial level of the company during a specific period of time.
In this way it reveals how the resources have been used, analyzes in detail the profits of the company and its use and the available cash, whether it is in the bank account or in the cash account.
In other words, it represents the financial situation of the company based on knowing the origin of the profits and their destination, and ultimately reflects the movement of the company’s capital with details of the origin and destination of these. Profits.
Therefore, the statement of changes in the financial situation is useful for the evaluation of the management of the money that enters the company and allows improving decision-making.